Editor’s Corner—How AT&T convinced Judge Leon that it and Time Warner need each other to compete with Netflix

In an era in which Netflix produces shows at a loss just to expand to far-flung international territories, and Amazon views TV as merely an enticement to larger retail goals, getting more scale and options is the only way media and telecom companies are going to stay alive. (iStockPhoto)

I remember writing in 2015 about how Netflix was about to usurp Time Warner Inc.’s market cap at around $60 billion.

By the time Time Warner Inc. got a judge’s permission to finally get swallowed up by a giant telecom three years later, its valuation—which had impressively grown to $75 billion, largely based on M&A prospects—was more than doubled by the SVOD’s service’s $158 billion-plus valuation.

Netflix was valued at just $150.3 billion when it left Comcast and Disney in the dust just two weeks ago. Netflix has now surpassed every major media and cable company in value. Very soon, it won’t even be close.

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Indeed, Netflix—which will spend $8 billion on original TV programming this year and is hiring away much of the major media conglomerate’s A-list talent in the process—has an increasingly larger share of the markets it serves and controls essential programming in those markets.

Ironically, an identical version of that last clause appeared in a statement released yesterday by the American Cable Association, admonishing the FCC and DOJ for not doing enough to stop the vertical combination of AT&T and Time Warner Inc., and “impose sufficient remedies to offset their harms.”

“The agencies also should prevent Comcast-NBCU from acquiring any additional firms, such as Fox, which would only increase its ability to harm consumer welfare,” ACA added.

For 20 months, we’ve heard the government, rival programming conglomerates and competing pay TV operators argue the same point—allowing AT&T to pay $85.4 billion to buy TNT and its major sports contracts, HBO, the Warner Bros. studio operation and a piece of Hulu, just to name a few of the Time Warner assets, would harm competition.

"We continue to believe that the pay-TV market will be less competitive and less innovative as a result of the proposed merger between AT&T and Time Warner," DOJ antitrust official Makan Delrahim said in a statement obtained by CNN.

AT&T argued that competition was the whole point. In an era in which Netflix produces shows at a loss just to expand to far-flung international territories, and Amazon views TV as merely an enticement to larger retail goals, getting more scale and options is the only way media and telecom companies are going to stay alive.

It’s helpful to realize that within Silicon Valley, Netflix’s value is comparatively small to stalwarts like Amazon, valued at $824.3 billion as of Tuesday evening.

Judge Richard Leon was thinking a little bigger than how Poughkeepsie Cable and Electric might be getting burned by double-digit rate increases on Cartoon Network.

Now, with AT&T-Time Warner’s blessing bursting open a dam of pent-up M&A, it doesn’t mean any of the deals we’re about to see will be any good. As The Wall Street Journal rightly pointed out, the last time Time Warner Inc. got married, it was to AOL, and that was a disaster. Meanwhile, Comcast continues to pursue Sky and 21st Century Fox, even against the wisdom of its shareholders.

But it’s all to what has become a larger—and, alas, righteous—goal of getting larger in the face of the Silicon Valley monolith.

We may not love it. But video is a big man’s business now. Consolidate, get to scale, or go home.